Question

please provide detailed step by step solution

Microeconomics

Question in Microeconomics

me ULTIPLE CHOICE. Choose the one alternative that best completes the statement or answer the question 1) Which of the following are included in calculating economic costs but not accounting costs? A) costs of capital B) costs of natural resources C) variable costs D) opportunity cost of resources used in providing the product. 2) 2) For many entrepreneurs, starting a new business means leaving an existing job and the pay which accompany's it. The pay given up by the entrepreneur when starting a new business is an example of for that entrepreneur A) neither an accounting nor an economic cost B) an accounting cost C) an economic cost D) both a fixed and a sunk cost 3) in 2018 ZYX, Inc. had Total Revenues of S4 million and Total Accounting Cost of $3 million Investors had invested $2 million in the company and could earn a 10% return on this $2 million if they had invested it elsewhere. ZYX's accounting profit was and its economic profit B) $800,000 $1 million D) $1,200,000, 5200,000 was A) 51 million $800,000 © 57 million, 52 million Number of workers Units of output 4 4) Refer to Table 82, which gives a firm's production function. Assume that all non-labor inputs are fixed. Diminishing returns set in with the addition of the A) third worker B) fourth worker. C) fifth worker D) sixth worker. Table 8.2 5) 5) When a firm is experiencing diminishing marginal returns/dimimishing marginal productivity A) average cost is decreasing B) marginal costs are decreasing marginal costs are increasing D) average cost is increasing A-1

Answer 1

First we have to understand

-what is meant by economic cost and accounting profit,

- accounting profit Vs economic profit

-Then law of diminishing marginal returns.

Explanation;

Accounting cost can be defined as monetary value incurred during the normal market transactions,

Accounting cost is simply explicit cost.

Economic cost can be described as monetary value of all resources used in business,

Economic cost= (explicit cost+implicit cost).

#implicit cost is foregone cost or opportunity cost.

@Therefore we will get answer for 1st question is "D" i.e. economic cost include opportunity cost of resources provided for product.

@In Second question it is only "economic cost" as he is forgone his pay in order to start new business treated as implicit cost,

hence option "C" is correct.

Then we have to discuss

Economic profit can we get through

=[Total revenue-(explicit cost +implicit cost)]

Accounting profit get through

=(Total revenue-explicit cost)

@now we can get answer for question number 3

Accounting profit

=$4million-$3million

=$1 million

Economic profit

=$4 million-($3 million+10%of $2 million)

=$800,000

Therefore answer is "A".

Then let's go for diminishing marginal returns

As per this law "at which number of input, increasing in every one input leads to starts increasing in output at diminishing rate"

Marginal returns

At worker1=(25-0)=25

At worker 2=(55-25)=30

At worker 3=(95-55)=40

At worker4=(125_95)=30

From the above we can get solution for question number 4 is

At worker number 4 starts diminishing marginal returns.

Thank you:-)

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